An overlooked growth and defensive play
? We initiate coverage on Beshom, one of Malaysia’s largest and oldest MLM
operators, with an Add rating given strong FY21-24F EPS CAGR of 12.1%.
? We see it as a potential beneficiary of downtrading and rising gig economy
due to rising inflation, backed by its established brands and attractive payout.
? Beshom is in a net cash position with strong FCF generation; forecast
dividends yields of 5-8% in FY22-24F vs. sector average of 2.5-3.0%.
Prominent “Hai-O” healthcare brand with over 47 years of history
Beshom Holdings Bhd (Beshom) (previously known as Hai-O Enterprise Bhd) is an
established MLM operator in Malaysia. Beshom’s competitive strengths lie in its: i) strong
“Hai-O” brand equity with a solid track record as a purveyor of traditional healthcare
products, ii) 30-year strong Bumiputera-centric multi-level marketing (MLM) agency force
(Apr 22: 70k agents; 85% Malays) as its main retail channel, which gives it a
demographic advantage (vs. peers), and iii) integrated supply chain with its MLM, retail
and wholesale business models, backed by its manufacturing capability (own two plants).
Strong pricing power with an extensive product portfolio
Beshom has a loyal customer base due to its established own-brand products across a
wide-range of halal and non-halal categories with over 50 exclusive brands (it currently
carries c.2k SKUs), giving it strong pricing power (steady gross margins due to multiple
price hikes despite higher input costs and Covid-19 waves in FY20-22F), in our view.
Growth strategies in place to drive 3-year EPS CAGR of 12.1%
We project Beshom to post 10.2% revenue and 12.1% core net profit CAGR over FY21-
24F. This is driven by: i) MLM agent CAGR of 10.5% on resumption of aggressive
recruitment via attractive incentives and direct selling as an alternative income source, ii)
targeted sales strategies (easy payment plans, “buy now, pay later” options, and focusing
on mid-priced products to benefit from potential downtrading), iii) growing sales of higher margin in-house products and via online channels, and iv) better operating efficiency
Defensive play on strong FCF generation; attractive dividend yield
Given its minimal capital outlay, strong free cash flow generation and net cash position,
Beshom maintained a generous dividend payout of 68-90% during FY19-21 (pandemic
years). Going forward, we forecast Beshom’s DPS at 8/12/13sen assuming dividend
payout ratio at 81/78/71% in FY22F/23F/24F, translating into appealing dividend yields of
5-8%, making it a top dividend play in the consumer sector (average: 2.5-3.0%).
Initiate coverage with an Add rating; ripe for a potential re-rating
We initiate coverage on Beshom with an Add rating and a TP of RM1.93 (11.1x CY23F
P/E, 1.5 s.d. below its 5-year mean forward P/E of 19.2x; a conservative approach in
view of potential risks from weakening consumer sentiment due to rising inflationary
pressures. A strong recovery in MLM membership is a re-rating catalyst. Downside risks:
weaker-than-expected recovery in agent count and slowdown in direct sales.